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LTC Properties Inc (NYSE:LTC)
Q4 2019 Earnings Call
Feb 21, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the LTC Properties, Inc. 4Q '19 Analyst and Investor Conference Call and Webcast. [Operator Instructions] After today's presentation, there will be an opportunity to ask 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, 2019. LTC undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances after the date of this presentation. [Operator Instructions]

I would now like to turn the conference over to Wendy Simpson, CEO and President. Please go ahead.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Thank you, operator and good morning. Welcome to LTC's 2019 fourth quarter and year end conference call. Joining me today are Pam Kessler, our Chief Financial Officer; and Clint Malin, our Chief Investment Officer. 2019 was a significant year for LTC, during which we made some tough decisions for change. Those changes have positioned us for future growth. We successfully addressed challenged portfolios, we strengthened our balance sheet by terming out some of our line of credit using proceeds from the sale of $100 million of senior unsecured notes and we move the company forward through acquisitions with operating partners new to LTC.

I'll spend the next few minutes detailing some of our progress, starting with operators on which we have or had a special focus. Anthem and Thrive are two examples of how we work through issues with portfolios that were not performing to LTC's expectations. In Anthem's case, we work to support them through their operational challenges and rationalization of corporate overhead. By the end of 2019, performance in our Anthem portfolio was greatly improved and rent collected from them was approximately 45% higher than the rent they paid us in 2018. We expect to collect $9.9 million of rent from Anthem in 2020, which is a 32% increase.

We had to take a different path with Thrive. After identify lease-up softness in 2018 at the [Phonetic] six communities they leased from us, we granted Thrive temporary rent relief to give them an opportunity to demonstrate forward progress. When that progress did not materialize, we move quickly to transition the portfolio to three separate regionally based operators, who we believe are better capitalized and better suited to meet the demands of their local markets.

One, Trilogy Management Services is an operating partner new to LTC and the other two, Veritas Healthcare Group and Affinity Living Group represent expanded existing relationships. We are pleased with the transitions and the progress that has been made as these partners implement their own cultures, marketing initiatives and care programming. Former Thrive assets will yield higher cash rents in 2020 over 2019. Transitioning this portfolio is just one example of how we've used our solid and robust network of regional operating relationships to quickly transition properties and portfolios when needed.

Additionally, during the year, we maneuver through Senior Care Centers bankruptcy. After the court allowed Senior Care to assume their LTC lease over our objectives, we received all monies owed to us, including all past-due rent and legal fees. Senior Care continues to get short extensions to emerge, as they work to finalize their exit financing. Currently, we expect their emergence from bankruptcy to be sometime in March. 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. We are carefully monitoring Senior Care's progress and are confident that LTC is prepared for likely contingencies.

In 2019, we successfully executed on our Annual Capital Recycling Program by selling $16 million worth of properties in line with our annual average of $18 million. 2020 sales will be higher than its historical average based on our progress in divesting the Preferred Care portfolio, which Clint will discuss later and as we continue to pursue additional capital recycling opportunities. Of the $81 million of investments we completed in 2019, all that $7.5 million [Phonetic] was with operators new to LTC. Ignite Medical Resort, Randall Residence and English Meadows are new additions to our portfolio.

Subsequent to year end, we completed a transaction with HMG Healthcare adding another strong regional operator. These new operators expand both skilled nursing and senior living. On the skilled side, Ignite and HMG 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. On the private pay side, Randall Residence is a strong regional operator, whose excellent operating and development capabilities provide us and the residents with significant value.

Our 2020 growth strategy will focus on continuing to source traditional triple net leases and new opportunities requiring creative financial solutions. But it's bears [Phonetic] repeating that the market has not changed meaningfully since our last call and early indications show that we will have to dig deep to find the kinds of transactions that best benefit our shareholders.

Pricing remains fairly tight. Older properties have unattractive cap rates and newer properties are priced well above replacement costs. We have never been a plan [Phonetic] of growing for growth 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. We will also continue to use our asset management expertise and strong balance sheet to our advantage by offering flexible and creative structures through which to deploy capital and meet the growing and changing needs of regional operators.

I'll finish with our guidance for 2020. Assuming no additional investment activity, financing our equity issuances and assuming the sale of the Preferred Care portfolio, FFO is expected to be between $3.01 and $3.03 for the year.

Now, I will turn the line over to Pam.

Pam Kessler -- Executive Vice President, Chief Financial Officer and Secretary

Thank you, Wendy. Total revenues increased $2.9 million for the 2019 fourth quarter from the same period last year. Rental revenues increased $5.4 million, $3.9 million of which is related 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. Therefore, revenue in the 2019 period includes property tax income, while 2018 does not.

The remainder of the increase resulted from acquisitions and completed development projects, Anthem's rent increased and lease escalations, offset by $869,000 related to lease transitions. Additionally, please note that we have received $2.5 million more rent from Senior Care this quarter than we did in the fourth quarter of 2018. In December 2018, Senior Care failed to pay rent and entered bankruptcy protection. In December 2019, they paid all past-due 2018 rent in addition to December 2019 rent. However, a $2.5 million rent shortfall from Preferred Care in the fourth quarter of 2019 compared with the fourth quarter of 2018, offset the Senior Care increase.

Interest income increased $393,000 in the 2019 fourth quarter, due to the funding of additional loan proceeds and expansion and renovation projects. While other income decreased $2.9 million related to the 2018 fourth quarter write-off of earn-outs to Senior Lifestyle that we're no longer projected to be paid. Income from unconsolidated joint ventures decreased $346,000 due primarily to mezzanine loan payoffs and reduced income from our preferred equity investment with Senior Lifestyle.

NAREIT FFO was $0.81 per diluted share for the 2019 and 2018 fourth quarters. Excluding non-recurring items, which include insurance proceeds of $0.05 in the 2019 fourth quarter that I'll discuss in a minute and the earn-out write-off of $0.08 in the 2018 fourth quarter, FFO per share was $0.76 in the 2019 period, compared with $0.73 last year. Net income available to common shareholders decreased to $18.2 million from the prior year due to the decrease in other income I just described, an impairment charge related to a preferred equity investments, which Clint will talk about shortly, and a loss on sale in the 2019 period compared with a gain on sale in last year's fourth quarter, partially offset by the increase in rental revenues.

During the 2019 fourth quarter, we recognized a $2.1 million gain from insurance proceeds related to a property that had sustained hurricane damage and rather than rebuild it, we sold it in the fourth quarter. We also sold two additional properties in the fourth quarter, one in Texas and the other in Arizona for net proceeds of $5.9 million. These sales resulted in a cumulative loss of $4.6 million or $2.5 million when netted with the insurance proceeds gain. Interest expense increased by $363,000 from last year's fourth quarter due to the sale of $100 million of senior unsecured notes in the 2019 fourth quarter.

G&A expense decreased by $260,000 from the 2018 fourth quarter due to the reimbursement of legal fees from Senior Care. For 2020, we expect quarterly G&A expense to be in the $4.8 million to $4.9 million range. During the 2019 fourth quarter, we invested $19 million in the acquisition of two Senior Living communities in Michigan. Subsequent to the end of the year, we invested $13.5 million in the acquisition of a skilled nursing center in Texas. The operators associated with these three properties are new to LTC. Clint will discuss these transactions further.

During the fourth quarter, we also funded $6.2 million in development and capital improvement projects on properties we own and $1.4 million under mortgage loans, as well as LTC's $0.19 per share monthly dividend. Dividend payments during the 2019 fourth quarter totaled $22.7 million. At December 31, we owned two properties under development with remaining commitments totaling $18 million. We also have remaining mortgage loan commitments of $3.3 million related to expansions and renovations on four properties in Michigan.

As Wendy mentioned, during the fourth quarter of 2019, we termed out $100 million of our line of credit with senior unsecured notes, bearing interest at 3.85% maturing in 2031. Additionally, we borrowed a net of $28.5 million under our line of credit for acquisitions and to fund capital projects, and made $19 million of scheduled principal payments under our senior unsecured notes.

Subsequent to the end of the year, we borrowed $18 million under our line of credit for acquisitions and to fund development commitments. Our steadfast focus on maintaining a strong balance sheet gives us the flexibility and capacity we need to fund current and long term growth initiatives. We currently have approximately $488 million available under our line of credit and $200 million under our ATM, providing LTC with total liquidity of almost $690 million.

Our long-term debt-to-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 fourth quarter, our credit metrics favorably compare to the healthcare REIT industry average with debt to annualized adjusted EBITDA for real estate of 4.6 times and annualized adjusted fixed charge coverage ratio of 4.9 times and a debt to enterprise value of 28%.

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

Clint Malin -- Executive Vice President and Chief Investment Officer

Thanks, Pam. I have several items to cover, including the status of Preferred Care and our Senior Lifestyle preferred equity investments. I'll also provide an update on Brookdale's lease renewal, properties under development, lease and acquisitions, portfolio numbers and the pipeline. As we discussed last quarter, after a thorough evaluation of the sale and releasing initiative of our skilled nursing portfolio with Preferred Care, we decided to sale was the best option for LTC and our shareholders.

On the 23 properties leased to Preferred Care, one was sold in 2019 and 20 are currently under contract and expected to close before the end of the 2020 first quarter. Net proceeds for the properties currently under contract is expected to be approximately $59 million. We anticipate the sales of the remaining two buildings will be completed in the 2020 second quarter. We will provide additional details on the transactions during the next quarterly earnings call.

Last quarter, I also said that two properties owned by an affiliate of Senior Lifestyle, in which we hold a preferred equity investment on non-accrual basis were in the process of being sold. Since that time, a purchase agreement has been executed and due diligence has been completed. We expect the sale to close in April.

Based on the sales price under the purchase agreement, LTC has recorded an impairment on its preferred equity investment of approximately $5.5 million, which represents a difference between our investments and the estimated net sales proceeds. The impairment is higher than the range we provided last quarter, primarily due to the buyers' capex requirements and the $500,000 holdback related to an indemnity provision in the purchase agreement. To-date, we have received substantially all of the $600,000 in additional income we expected from Senior Lifestyle based on their forecast of net operating income through 2019.

Presently, the only significant lease renewals we have through 2022 are our leases with Brookdale Senior Living, which were expiring at the end of this year. The Brookdale portfolio consists of master leases covering a total of 35 properties in eight states. Currently, Brookdale is in the renewal notice window to exercise its first renewal option, which remains open through approximately June 30. The renewal term is for 10 years, which would commence on January 1, 2021.

During the renewal term, the annual rent escalations will continue as during the initial term, which is based on a variable formula averaging approximately 2% per year. Coverage in the portfolio by master lease is healthy, which leads us to believe Brookdale is likely to exercise its renewal option. Besides the Brookdale leases, we have six properties and four leases that expire in the next 24 months and which represent less than 3% of our expected 2020 revenue.

Moving to acquisitions. Shortly after the close of the quarter, we announced a $33 million investment in three properties in Michigan and Texas, both operators are new to LTC. The two Michigan properties are located in the Auburn Hills and Sterling Heights, included a total of 156 assisted living and memory care units and closed right at the end of 2019. We acquired them for $19 million with an additional capital improvement investment of approximately $2 million to be deployed in the first year of the lease. The lease is the 10-year triple net master lease with 2% annual rent escalations starting in year two, with four, five-year renewal option.

The initial cash yield is 7.4%. The communities are being operated by Randall Residence, a Michigan based family business established in 1975. Randall currently operates 13 independent living, assisted living and memory care communities in Michigan, Ohio, and Illinois. The property in Texas is skilled nursing center with 140 licensed beds is located in Longview and closed in the beginning of January. We invested $13.5 million in the acquisition.

HMG Healthcare is up in the center under a 10-year triple net master lease with 2% annual rent escalations starting in year two with two, five-year renewal options. The initial cash yield of 8.5%. HMG Healthcare was established in 2012 and currently owns and/or operates 28 senior housing and care properties in Texas and Kansas.

In conjunction with the acquisition, HMG Healthcare took over operations of a skilled nursing center in Nacogdoches, Texas, in which the lease we had with another operator matured. Concurrently, HMG Healthcare also assumed operations of a Preferred Care property, we own in the same city and commence closure of it, consolidating operations of these two properties. The closed nursing center is now being marketed for sale.

As a result of these transactions, we have further resolution of our Preferred Care portfolio, help strengthen HMG Healthcare's position in the Texas market, which also benefits LTC and invested in a newer building in Longview with a strong regional operator new to LTC. In both cases, we were able to consummate these deals after building relationships over time and working together to find the best opportunities for them and for LTC.

In the case of HMG, we have a more than 10-year relationship with two of their principles, gaining [Phonetic] back to the prior company affiliations. We are excited to reunite with the principles of HMG and they're very capable of managing the team and believe we have the possibilities for additional growth with all of our new operators. Maintaining strong operator relationships is a hallmark of our culture and strategy, and we will continue to foster current and new relationships to source new opportunities.

Before I discuss our portfolio numbers, I would like to update you on one of our recent development projects. Under our real estate joint venture with Fields Senior Living, we are developing a 78-unit assisted living and memory care community in Medford, Oregon. The community is expected to begin welcoming residents in the first part of March at which time we will have four buildings in partnership with Fields.

Moving to our portfolio numbers. Q3 trailing 12-month EBITDARM and EBITDAR coverage using a 5% management fee was 1.43 times and 1.21 times, respectively, for our assisted living portfolio and 1.75 times and 1.31 times, respectively, for our skilled nursing portfolio. Remember that given the sale of the Preferred Care portfolio, we have been excluded from these numbers.

I'll finish up with some comments on our pipeline, which continues to be robust and active. We are excited to see and are evaluating a white sauce [Phonetic] of financing opportunities from construction, to broker deals, to turnarounds and stabilized properties across the continuum. As we mentioned, the market remains frothy, but of course, the deals must meet our stringent underwriting criteria and have the opportunity to create or enhance growth or into the operating partnerships.

Now I'll turn the call back to Wendy for closing remarks.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Thank you, Pam, and Clint. In the last half of 2017, it became painfully obvious that Anthem's early success in leasing up new properties was not going to be the new norm. Causes are attributable to their operational challenges, overdevelopment and other market conditions. Then comes the challenges of the bankruptcies at Preferred Care and Senior Care, and the need to reposition former Thrive assets. In the last two years, LTC has been involved in very active portfolio management, which has strengthened our capabilities to manage our portfolio. Through these challenges, we have maintained our strong balance sheet and safe monthly dividend payout.

With our $690 million of liquidity, I can truly say we are now highly focused on growth, and our biggest challenge is finding that [Phonetic] growth to add value to LTC. We remain committed to broadening portfolio diversification by operator, geography and property type. We have begun our transition to a much more positive 2020, and I'm optimistic about our progress and opportunities as we strive to become a REIT done differently by remaining creative, flexible, and open to interesting opportunities that others may not appreciate. We look forward to updating you again next quarter.

Operator, we are now ready for questions.

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jordan Sadler with KeyBanc Capital Markets. Please go ahead.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Thank you, and good morning. I wanted to start with Preferred Care. If you could just bridge us from sort of last quarter's sort of estimated total proceeds to where we are now. I wasn't -- I didn't follow exactly given sort of the transaction that took place this quarter plus what's anticipated to happen in 1Q and 2Q. If you could just do that for us that'd be helpful?

Clint Malin -- Executive Vice President and Chief Investment Officer

Jordan, good morning. This is Clint. We didn't give a number last quarter, as far as the total proceeds, because the contracts, the resulted due diligence period open. So right now for the 20 buildings that are currently under contract that are expected to close in first quarter is $59 million, with the sale that occurred in the fourth quarter. The net proceeds were approximately $6 million after the holdback. So with those 21 properties, it's approximately $65 million of net proceeds.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

And are there an additional two properties left to sell?

Clint Malin -- Executive Vice President and Chief Investment Officer

Sure. No. There is additional two properties. So one property is the one I discussed in my prepared remarks that was closed in Nacogdoches, Texas. It's currently being marketed for sale. And there is one remaining property in Arizona that operates as a -- it's a skilled nursing building, but operators for the specialized behavioral program. And because of that behavioral program, it deferred from the other building we had in Arizona. We were initially marketing the buildings together. But we found that during the process, there's is probably a different buyer for that other building that remains in Arizona. So we're remarketing that and targeting operators that would be interested specifically in a behavioral program.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

And what's the total rent from the remaining two properties, behavioral and the other one?

Clint Malin -- Executive Vice President and Chief Investment Officer

Right now, we are negotiating that with Preferred Care, but it should be somewhere similar to what we're receiving right now on a monthly basis -- which is approximately $50,000 -- approximately $50,000 a month.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay.

Wendy Simpson -- Chairman, Chief Executive Officer and President

And Jordan, we're not going to get anything off of Nacogdoches, because that's close.

Clint Malin -- Executive Vice President and Chief Investment Officer

Yeah. It's normally [Phonetic] closed, yeah.

Pam Kessler -- Executive Vice President, Chief Financial Officer and Secretary

We will get the net proceeds.

Clint Malin -- Executive Vice President and Chief Investment Officer

Yeah.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Right.

Pam Kessler -- Executive Vice President, Chief Financial Officer and Secretary

So there is only one final preferred building.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

I guess, I feel like that the gross proceeds -- and then, I feel like the gross proceeds are the ones that are under contract that were sold in the fourth quarter, fell a bit short of, I guess, where we were triangulating. And I'm just curious if the market moved or we were -- where we just overly optimistic, because what's the implied GAAP rate or the GAAP rate essentially relative to the rent that you're receiving, Clint, on the 65?

Clint Malin -- Executive Vice President and Chief Investment Officer

We -- I think you should look -- had to look at it on a cap rate basis, I mean, usually people will..

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

A lease rate basis. I know, I understand, but I'm just ultimately I have to put this in my model. So I'm just trying to understand.

Clint Malin -- Executive Vice President and Chief Investment Officer

We can calculate. I don't have it readily, we can calculate that for you can get that number to you.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. And then maybe on the pipeline. Clint, you said robust and active, which seems like an interesting sort of characterization. I guess also in context of, I guess, Wendy's opening remarks, where you guys will continue to be pretty stringent about your underwriting and that the market is still kind of tight. You've got to be creative. So can you maybe sort of dig in there a little bit on what the robust is?

Clint Malin -- Executive Vice President and Chief Investment Officer

Sure, absolutely. We're seeing -- I mean, there's still there's a lot of deal flow, a lot of transactions that we see through the broker community, through relationships. So we were very active, engaged in evaluating and reviewing deals. That deal volume is pretty high. Obviously, we went through that to qualify the ones we think makes sense for us. We are very selective. So we have to look at a lot of transactions to be able to find the ones that we think are appropriate for us. But there's still -- there's still a lot of activity and the market is fairly strong. So we're looking at skilled, private pay, like, I said, there's turnaround deals and development deals. We're talking about mezzanine investments to build relationships with operating companies. So we're very actively engaged in the acquisition process, and we are looking at a lot of opportunities.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

On the skilled side, I guess, kind of curious sort of post -- the very recent PDPM implementation by these operators. Are you seeing a lot of flow because people are excited about the 4Q performance and your underwriting off of that or how do we sort of read through?

Clint Malin -- Executive Vice President and Chief Investment Officer

No. We haven't seen as much -- sure. We haven't seen as much opportunity on the skilled nursing side because a lot of what we've seen in the market are older properties. And with us deducting the Preferred Care portfolio, that's really not -- that we've not been as focused on. So we haven't seen as many skilled opportunities that fit our criteria, but we're very supportive of the field industry and continue to look at a lot of opportunities. They want to continue to invest in skilled nursing. It's just finding the right opportunities. I think right now to see deal flow in the market from PDPM that was just implemented. So I think during the course of 2020, we'll be in a better position to see whether the volume of deals on the skilled nursing side that we are interested in come to market.

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Okay. Thanks for the color.

Clint Malin -- Executive Vice President and Chief Investment Officer

Thank you. Appreciate it.

Operator

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

Tao Qiu -- Stifel -- Analyst

Hi. Good morning. This is Tao Qiu [Phonetic] on for Chad.

Clint Malin -- Executive Vice President and Chief Investment Officer

Good morning.

Tao Qiu -- Stifel -- Analyst

Congrats on early receipt of the catch-up payment from senior cash centers this quarter. I think that was the positive surprise. Could you remind us, if you guys have any other pending or potential payment as for release, that you could possibly see for 2020?

Clint Malin -- Executive Vice President and Chief Investment Officer

Pertaining to Senior Care?

Tao Qiu -- Stifel -- Analyst

Not just Senior Care, but broadly to the operator that you guys transitioned recently or any other prior no restructurings that you did?

Wendy Simpson -- Chairman, Chief Executive Officer and President

No, nothing that hasn't already been disclosed and is probably in your model.

Tao Qiu -- Stifel -- Analyst

Okay. All right.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Nothing that would [Indecipherable] but unless it doesn't happen. I think in the Thrive transition press release, we gave a detailed three-year projection of the rent we were expecting to receive. And currently, all that is on track. So no, there's nothing that leads us to believe that we won't collect that.

Tao Qiu -- Stifel -- Analyst

Yeah. Since you mentioned Thrive. So it looks like you're going to see some structural cash from release on the anniversaries with the various operators that took over. Could you guys quantify the impact in life for the second half?

Wendy Simpson -- Chairman, Chief Executive Officer and President

Yeah. For this year, it's about $600,000 increase over the prior year.

Tao Qiu -- Stifel -- Analyst

Okay. That's helpful.

Wendy Simpson -- Chairman, Chief Executive Officer and President

So, yeah.

Tao Qiu -- Stifel -- Analyst

Yeah. My other question is about the Michigan asset you buy. It looks like you were busy working through the end of the year. Could you walk us through the rationale for buying these, which I believe are 25 -- 23 year old assets? And I think you guys bought it for $19 million and you're committing additional $2 million capital improvement in year one? What is the current occupancy level when you're in coverage in this transaction and how should we think about the return on the $2 million capex?

Clint Malin -- Executive Vice President and Chief Investment Officer

Sure. Well, our interest in this is, we've really been -- as I mentioned in my prepared remarks that we built -- been building a relationship with Randall Residence for a number of years now and looking for opportunities to work on a project with that organization. And this is an opportunity we found in a marketplace that Randall Residence has a presence. So that made a lot of sense to partner with them on this. Although it is -- I mean, a little bit older in regard to the original construction date, the buildings were in a fairly good condition. We've committed additional capital into the buildings. The coverage on these buildings on underwriting is about 1.25 times, so we felt very comfortable on the trailing 12 basis for the entry point for this investment, and we think we've got a lot of growth opportunity with Randall Residence. So it made a lot of sense for us to move forward, this transaction.

Tao Qiu -- Stifel -- Analyst

Okay, great. If I may ask just one more. I think-yeah, so Jordan asked about the pipeline, in general, but I wanted to follow-up on Texas, specifically. You made another SNF acquisition in Texas, which was HMG Healthcare. I mean, given the recent discussion on MPAR [Phonetic] and the initial positive reading on PDPM, has anything changed regarding your underwriting standard in that state? Are you seeing more opportunities, particularly in Texas?

Clint Malin -- Executive Vice President and Chief Investment Officer

We've seen -- we've been selective in Texas. I mean, again, this goes back to a relationship similar to Randall Residence. As I mentioned in my comment, we've had a long-standing relationship with the principles of HMG, and we, like, Randall Residence, we've been working on finding transactions with HMG over a number of years, and we found the right opportunity. And why I discussed in my comments, the tie-in of the building in our portfolio that we lease to HMG. This just evolved in a conversation with them, and it made a lot of sense for us. Geographically, Nacogdoches and Longview are probably about 1 hour, 1.5 hour apart. So it's really -- this just developed as an off market transaction. And it was a great entry point for us and HMG to partner together.

Operator

Our next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Jason -- RBC Capital Markets -- Analyst

Thanks. This is Jason [Phonetic] on for Mike. I know you mentioned that a lot of the relationships forged in 2019 were newer relationships to the portfolio. So another underwriting question. Could you just touch on how you underwrite new relationships versus existing as you turn to growth?

Clint Malin -- Executive Vice President and Chief Investment Officer

Sure. A lot of the underwriting of new relationships is spending time with those organizations, and develop relationship with their organization, understanding their business models, touring buildings that they operate in various markets. So it's really an evolution of getting exposure to these companies. And as I've said just previously, in the case of Randall and HMG, it's been over a long period of time of understanding their models, how they staff other buildings, their corporate office, their philosophy. So it's really an engaged process of working with these organizations over time.

Jason -- RBC Capital Markets -- Analyst

Got it. And then just a quick one on that Preferred Care asset. So what does remarketing data as a behavioral asset do for the valuation prospects?

Clint Malin -- Executive Vice President and Chief Investment Officer

I don't know, if it necessarily changes the valuation of the asset. I mean, the cash flow is the cash flow, I think it just takes a different operator profile than just straight on more of a skilled basis. They're looking more from a transitional model and not carrying for a behavioral population. So you just have a different operator base, I think that we focus on this building as opposed to the other assets that we sold.

Jason -- RBC Capital Markets -- Analyst

Got you. Thank you.

Clint Malin -- Executive Vice President and Chief Investment Officer

Thank you.

Operator

Our next question comes from John Kim with BMO Capital Markets. Please go ahead.

John Kim -- BMO Capital Markets -- Analyst

Thank you. Good morning. On your guidance for the year, what are you assuming as far as use of proceeds from the Preferred Care dispositions?

Wendy Simpson -- Chairman, Chief Executive Officer and President

We assume paying down the line.

John Kim -- BMO Capital Markets -- Analyst

Okay. Wendy, you mentioned older assets are trading an unattractive cap rate. So I was wondering, if you could elaborate what that means as far as ranges of cap rates and whether or not that's before or after capex?

Wendy Simpson -- Chairman, Chief Executive Officer and President

Ranges of cap rates are, if we're looking at assets that we would buy in the 7.5% and down to the 6.5%, depending on the type of assets, the cap rates that we're looking at are much higher than that, and it could be in the 10s or 12s. So we're just -- we just can't even spend money at that rate.

John Kim -- BMO Capital Markets -- Analyst

And that's -- this is for AL or SNFs?

Wendy Simpson -- Chairman, Chief Executive Officer and President

For SNFs. The SNFs are the ones that we are finding are the older ones. For ALs, they're probably around 8% or 9%. And because of the recent development in the private pay sector, if you have an older asset unless you can really put money in as we're doing in Michigan to improve the property and if that there's not a lot of new product in the marketplace, you just can't underwrite that successfully. And we have done a lot of looking at properties that we just couldn't get to that -- the price at the broker or the seller was trying to get. So there's a lot of older private pay, or we saw a lot of older private pay in 2019. I haven't been looking at older private pay in 2020 yet. But -- and they were one or two properties that were being sold at that level.

John Kim -- BMO Capital Markets -- Analyst

Okay. I think Clint mentioned that you believe the likely outcome of the Brookdale lease expiration this year would be that it would renew. But I was wondering, have they been in contact with you or have you been negotiating with them at all as far as changing any of the terms as far as annual escalators or capex requirements?

Clint Malin -- Executive Vice President and Chief Investment Officer

I wouldn't say necessarily negotiating with them, but we've been actively engaged with Brookdale. We've had conversations with them in regard to their interest in looking at -- I mean, us finance capital improvements into the buildings. Brookdale's been active in that -- in their own right and spending their own capital into the buildings. But we've let them know that as we typically then -- we have been very proactive with the operators and looking at reinvesting in our buildings and making capital available to them. And we have approached Brookdale about that, and it's something they're evaluating whether they want to look at us financing any improvements or they would fund it on their own. But we've had a very active and open discussion and communication with Brookdale, and really appreciate the relationship with them.

John Kim -- BMO Capital Markets -- Analyst

And what was the EBITDA coverage of that portfolio?

Clint Malin -- Executive Vice President and Chief Investment Officer

We haven't given the coverage specific on that portfolio, as I mentioned in my prepared remarks, it's a very healthy coverage by master lease, which leads us to believe that they probably are likely to renew the properties.

John Kim -- BMO Capital Markets -- Analyst

Okay. Thank you.

Clint Malin -- Executive Vice President and Chief Investment Officer

Thank you.

Operator

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

Rich Anderson -- SMBC -- Analyst

Thanks. Good morning, everybody.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Good morning, Rich.

Rich Anderson -- SMBC -- Analyst

So on -- just a couple of questions here. First, from a modeling perspective, you mentioned with Senior Care, you've got all your past due rents. So is there an adjustment, I assume, as a -- to recreate the run rate starting in the first quarter? Do I take sort of $2 million out and start fresh? Is that the right way to handle it?

Wendy Simpson -- Chairman, Chief Executive Officer and President

Of revenue, take $1.2 million, because that was the rent. The rest was reimbursement of some legal costs of that and G&A. But off your revenue run rate, take $1.2 million off, because I don't think we're going to get 13 months of rent in 2020.

Rich Anderson -- SMBC -- Analyst

Okay. Fair enough. Now one of the things you talked about is Senior Care is going through their process, you're hopeful for, obviously, a good outcome for LTC and your prepared should something sort of run a miss with them one way or another, with another operator. So I'm extrapolating that game plan to Brookdale, which you said you expect them to renew, but what if they don't? I mean, do you have a contingency plan in place at all? Have you thought about what you might do with those assets if they choose not to? Just curious if you're equally prepared?

Clint Malin -- Executive Vice President and Chief Investment Officer

Absolutely. We've definitely thought through that, and the coverage is strong enough or I think if they elected not to renew the portfolio, that would be most likely a financial pickup for us.

Rich Anderson -- SMBC -- Analyst

Okay. Good enough. And then last for me, a lot of your peers talk about pretty thin coverage on their net lease assets in the senior housing space. It's high in mind, a lot of investors. You gave your aggregate coverage numbers, and you guys generally have a good story to tell there. But I'm wondering if you have any sort of meaningfully sized situations where you are approaching one or lower that might be in need of some sort of reset or is that pretty much -- now that you've been through all these operator situations, are you pretty much clear of that now? Just curious where you are -- where you stand on that issue.

Clint Malin -- Executive Vice President and Chief Investment Officer

Sure. I guess, which I would characterize it such as they sale [Phonetic]. So on the skilled side, we have only two properties, which are just slightly under 1 times EBITDARM coverage on the skilled side. And when you look at our total revenue, it's probably right at maybe 1% of total revenue for those two buildings. That's on the skilled side. And then on the private pay side, we don't have anything below 1 times on EBITDARM coverage. So I guess, on top, I found your question.

Rich Anderson -- SMBC -- Analyst

Okay. Perfect. Thanks very much.

Clint Malin -- Executive Vice President and Chief Investment Officer

All right. Thank you.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Thanks, Rich.

Operator

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

Daniel Bernstein -- Capital One -- Analyst

Hi. Good morning.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Good morning, Dan.

Daniel Bernstein -- Capital One -- Analyst

So what has -- so on acquisition side, are you finding and maybe this is both for senior housing and that there's significant deferred capex with some of these assets that are a hindrance to you, but actually buying the assets? I'm just trying to understand kind of like the preponderance of that out there, in the marketplace.

Clint Malin -- Executive Vice President and Chief Investment Officer

Sure, absolutely. There definitely are situations where we're seeing all the properties that need capital, but the challenging part is looking at how much capital needs to be deployed and what's the asking price for the assets. They got to be able -- we have to buy them at the right price point to be able to deploy the capital in and then to make them competitive and viable. So we are seeing situations where there is this capital need. But that affects what our underwriting is and what we -- what our going-in price can be to make that investment in a profitable way where we can have a coverage for our operator to successfully operate the property.

Daniel Bernstein -- Capital One -- Analyst

And it'd be correct to say that this -- many sellers are not pricing in that deferred capex and their asking price?

Clint Malin -- Executive Vice President and Chief Investment Officer

Absolutely.

Daniel Bernstein -- Capital One -- Analyst

Okay. And then in terms of development, I mean, you obviously did a significant amount of development Anthem, Thrive. When we look at the landscape out there, stocks are coming down pretty significantly. Looks like absorption is starting to exceed supply growth. Would you consider ramping up development, again, in senior housing?

Clint Malin -- Executive Vice President and Chief Investment Officer

At this point, I don't think so. I mean, we've brought down that development, Dan.

Wendy Simpson -- Chairman, Chief Executive Officer and President

We didn't call it ramping up.

Clint Malin -- Executive Vice President and Chief Investment Officer

But we've built collectively...

Daniel Bernstein -- Capital One -- Analyst

I don't know, couple of properties-couple of projects a year, three or four projects a year. Yeah.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Right.

Clint Malin -- Executive Vice President and Chief Investment Officer

Yeah, absolutely. But I mean, a great example of this, Dan, though is that, not necessarily on the product fleet side, but looking at opportunities where we can develop. I mean, look at the opportunity we had with Ignite Medical Resorts coming in and being able to buy and partner with them on a new skilled nursing investment. And in conjunction with that, a development of a new property and building that relationship with Ignite on the private -- I mean, on the skilled side gives us opportunity to look at development as they grow out their platform, and we hope to be able to partner with them on future developments.

So you may see development on the skilled side with organizations like Ignite and -- but on the private pay side, it's going to be select and opportunistic. I mentioned the project we have with fields Senior Living that's coming online and in Medford, Oregon. We did that development in conjunction with independent living community we bought and developed this adjacent to that project. So I can give you very selective and opportunistic in how we look at development.

Daniel Bernstein -- Capital One -- Analyst

And then, one last question, it seems to be the flavor of the day, senior apartments, that's in the Senior Housing. News rags, it's well towers, obviously, doing something there and others. So have you looked at senior apartments and maybe, kind of maybe, any initial thoughts on that product type, would you be interested in?

Clint Malin -- Executive Vice President and Chief Investment Officer

We haven't spent a lot of time looking at that or we actually do have one project in Wichita, Kansas that we financed construction on -- with an operating partner of ours Oxford, Senior Living. And so we do have that on-campus with an assisted living memory care community that we financed with them in the same market. But on a broad basis, we haven't spent a long time, but it's something we would look at. And as far as the underwriting, and maybe there is opportunity for us to look in that space.

Daniel Bernstein -- Capital One -- Analyst

Okay. All right. That's all I have. Thank you.

Clint Malin -- Executive Vice President and Chief Investment Officer

Right. Thank you.

Operator

[Operator Instructions] Our next question comes from Connor Siversky with Berenberg. Please go ahead.

Connor Siversky -- Berenberg -- Analyst

Good morning, everyone. Just a little more on a question I asked earlier in terms of rent coverage in your tenant roster. Are you seeing any divergence among your tenants on rent coverage? And is that -- is there any rhyme or reason to any specific markets where that's happening or just any color there?

Clint Malin -- Executive Vice President and Chief Investment Officer

I would say that we haven't seen a lot of divergence with any specific operator. We're seeing some increases in certain markets with a couple of operators we have properties within the state of New Mexico. We've seen some change in coverage with an 8% increase in the Medicaid rate in that state, plus the implementation of provider tax. So we've seen some large changes. They're still being phased in on...

Wendy Simpson -- Chairman, Chief Executive Officer and President

Right, not reflected in...

Clint Malin -- Executive Vice President and Chief Investment Officer

Not yet fully reflected into our coverage metrics. So that's one example where we're seeing improvements specific to a given state.

Connor Siversky -- Berenberg -- Analyst

And then it was mentioned before, some of these assets you recently acquired are a couple of decades old. I mean, do you think the age of these assets really affects occupancy trends or is it more about the operator in that sense?

Clint Malin -- Executive Vice President and Chief Investment Officer

It's more about the operator. And I look at that and you're coming in and buying it at the right price and then investing the appropriate capital to make the buildings competitive. Example being in the Michigan properties. The price point of where we originally started that discussion on the acquisition price and through our due diligence process, I mean, that price did come down a number of times as we did underwriting, looked at the needs, and there was a little bit of decline in cash flow as we're going through the acquisition process. So we feel that through diligence, the price reductions that we were able to achieve in that transaction were attractive for us and our operator that really afforded coverage that we think provides a stabilized operation for the operator and the additional capital deployed. I think we'll continue to make those buildings competitive for operator.

Connor Siversky -- Berenberg -- Analyst

Okay. So I mean -- and just one last one for me. So looking forward in terms of acquisitions, I mean, do you think some of these older assets might make for attractive opportunities in the next couple of years or would you still rather partner may be newer? Okay.

Clint Malin -- Executive Vice President and Chief Investment Officer

No, no, absolutely. It goes back to the operator of the market, the entry point on pricing and what capital we can put into the building. So we would absolutely look at -- to older assets that need additional capital, but it's got to be the right overall investment from the initial investment through capex that makes the buildings sustainable and doesn't overburden the property with too much rent.

Connor Siversky -- Berenberg -- Analyst

Okay. Thank you very much

Clint Malin -- Executive Vice President and Chief Investment Officer

It goes back to basics. Thank you very much.

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 -- Chairman, Chief Executive Officer and President

Thank you, Operator. I'd just like to say we totally understand your focus on proceeds that we will be getting or have gotten from Preferred Care. We'll give you more detail in the next conference call we have. But to note, when we give you proceeds, we're giving you net proceeds, which includes some holdback. You've got -- you must understand that the buyers are buying this without Preferred giving them any indemnification. So we have implemented, in certain instances, a holdback amount that stays in escrow, which we fully expect, quite a bit of it will be returned to us. But our proceeds that we talk about are net of that holdback period -- or holdback them up. So there's a couple of million dollars of additional possible net proceeds. And I just wanted to be clear about that.

Pam Kessler -- Executive Vice President, Chief Financial Officer and Secretary

And there's also the net proceeds from the joint venture investment.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Correct. Yes. Their net proceeds from that...

Pam Kessler -- Executive Vice President, Chief Financial Officer and Secretary

Those need to be added together.

Wendy Simpson -- Chairman, Chief Executive Officer and President

Yes, the holdbacks. But in any case, I appreciate all the time you've spent with us and certainly appreciate all your questions. We look forward to talking to you again after the first quarter. Thank you, and have a great weekend.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Wendy Simpson -- Chairman, Chief Executive Officer and President

Pam Kessler -- Executive Vice President, Chief Financial Officer and Secretary

Clint Malin -- Executive Vice President and Chief Investment Officer

Jordan Sadler -- KeyBanc Capital Markets -- Analyst

Tao Qiu -- Stifel -- Analyst

Jason -- RBC Capital Markets -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Rich Anderson -- SMBC -- Analyst

Daniel Bernstein -- Capital One -- Analyst

Connor Siversky -- Berenberg -- Analyst

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