LTC Properties Inc. (LTC) – a healthcare real estate investment trust (REIT) – recently declared that it has entered into a mortgage loan agreement with affiliates of Prestige Healthcare. The loan amount of $141.0 million is secured by 185 properties that comprise 2,092 licensed skilled nursing beds and 24 independent living units in Michigan.
The loan is for a period of 30 years, bearing an initial interest of 9.41% for five years. Further, this interest rate will increase annually by 2.25%. Moreover, for the first three years, LTC Properties would only pay the interest and would thereafter pay interest along with an annual principal amount of $1.0 million.
Of the total loan amount of $141.0 million, LTC Properties expects to fund around $126.0 million in the fourth quarter of 2013 along with an additional forward commitment of $12.0 million towards capital improvement and up to $3.0 million toward short-term working capital.
Additionally, the agreement provides extra loan proceeds of up to $40.0 million, limited to $10.0 million per year, subject to the fulfillment of certain conditions and based on certain operating metrics as well as valuation thresholds attained and maintained within the initial 12 years of the loan agreement.
The borrower would also be able to exercise a one-time option between the third and twelfth year to prepay up to 50% of the outstanding balance at that time without any penalty. Moreover, LTC Properties has divided the collateralized assets into two parts in order to utilize the one-time option.
If LTC Properties decides to exercise this one-time option, at the time of execution of the option, it can classify which of the two pools of assets it would release for prepayment and remove it from the portfolio of properties securing the loan.
However, if prepayment of the loan option is exercised and concluded timely, the borrower will lose the right to utilize the opportunity to access any additional loan proceeds.
In addition to this, LTC Properties has an option to procure the properties, subject to certain conditions and a change in the regulatory environment.
This loan agreement is expected to diversify LTC Properties’s operator base and enhance its geographic diversification. Additionally, this deal is anticipated to strengthen the company’s presence in top Metropolitan Statistical Areas.
LTC Properties currently carries a Zacks Rank #3 (Hold). Some better performing stocks include Winthrop Realty Trust (FUR) with a Zacks Rank #1 (Strong Buy) and CubeSmart (CUBE) and Douglas Emmett Inc (DEI) with a Zacks Rank #2 (Buy).
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