LTC PROPERTIES INC (LTC) stock intrinsic value fair value estimate & owner earnings analysis

LTC Properties is a real estate investment trust that owns and finances skilled-nursing centres and seniors-housing communities across roughly two dozen US states. Most of its income comes from long triple-net leases, where the operator pays rent with annual increases and covers taxes, insurance and upkeep, and from mortgage loans to operators at high fixed rates. Since 2025 a growing slice - about a quarter of the portfolio - is seniors housing that LTC now owns and runs itself through managers, after it ended the leases of operators such as Anthem Memory Care and New Perspective and took the buildings back. That segment earns the full operating profit but also carries the labour, occupancy and insurance risk that a lease used to pass to the tenant. How we measured earnings. We start with cash from operations, remove short-term working-capital swings, charge stock compensation as a real cost and deduct the capital LTC spends to keep its buildings in shape. The large 2025 non-cash write-off of $41.5 million of accrued interest on the Prestige Healthcare mortgage did not touch cash and is correctly added back; the cash that loan actually paid stays in. Because LTC borrows, we first value the business before its lenders by adding back cash interest paid, then subtract what it owes. On that basis the business produced between $2.59 and $3.61 a share every year from 2016 to 2025, with a median of about $3.28. The low point was 2021, when the pandemic emptied nursing homes and several tenants needed rent deferrals; the high was 2019. We use the full ten years as the window because it contains a genuine downturn for this industry and the recovery from it. Applied to today's 52.2 million diluted shares that is about $171 million a year; we trim it to about $166 million because Prestige, LTC's largest borrower at 11.9% of 2025 revenue, has given notice it will repay its $179.9 million loan, which pays 11.14%, and the money will most likely be reinvested at lower yields. Growth. In 2025 business cash flow per share rose about 1.4%. Over ten years it has grown under 1% a year per share even though the property count rose, because LTC funds most purchases by issuing new shares. Contractual rent escalators of roughly 2% a year are secured, but operator failures and lease restructurings have repeatedly eaten into them. We therefore credit only 1% a year in the base case, with no step-up in year one, and nothing for future acquisitions, the newly started construction loans, or any improvement in the self-operated seniors housing, none of which is yet in the bag. The cases. In the base case the business produces about $166 million next year growing 1% a year, worth about $2.96 billion. In the bull case contractual escalators are kept in full at 2% a year and the reinvested Prestige proceeds earn close to what they earn today, starting from about $171 million - worth about $3.27 billion. The bear case repeats the 2020-2021 pandemic episode, the worst stretch in this record: business cash flow per share fell 28% from 2019 to 2021 and took about two years to recover. We apply the same 28% fall in the second year, a three-year climb back, and then leave earnings permanently 12% below today's level to reflect lost tenants, the Genesis Healthcare bankruptcy (Genesis leases six nursing homes with 782 beds in New Mexico and Alabama and had paid rent only through February 2026 at the time of the annual report) and weaker self-operated results. That is worth about $2.36 billion. Debt. LTC owes about $777 million (a $200 million revolving line, about $200 million of term loans and $379 million of senior notes) and outside partners own about $73 million of joint-venture interests whose cash flow we count in full, against $40 million of cash. Most of the senior notes carry fixed rates near 4.4%, below what new money costs, which slightly reduces the burden. Net, shareholders stand behind about $795 million of claims. Maturities are laddered, with the largest year 2028 when the revolving line comes due; interest of roughly $40 million a year is covered about four times even at the bear-case trough. After debt, the bear case is worth about $1.56 billion or $29.89 a share, the base case about $2.17 billion or $41.51 a share, and the bull case about $2.47 billion or $47.36 a share. The previous figures we published were built on a different basis and are not comparable. Margin of safety price. We are fairly confident of the earnings level: ten years of cash flow sit in a narrow band and include the worst operating shock the industry has had in decades. The worst plausible outcome is a cluster of operator failures at once - several tenants at 8-12% of revenue each going the way of Genesis - combined with Medicaid reimbursement pressure and losses in the self-operated buildings; the structure would survive that, because debt is moderate against the value of the buildings, maturities are spread out and the assets are hard real estate that can be re-leased or sold, as LTC showed by selling seven California, Florida and Virginia nursing homes in 2025 after their operator declined to renew. The things we are most likely wrong about are what the Prestige money earns once repaid and how the self-operated seniors housing performs; if both go badly the shares are worth something near the bear case, about $30. The business pays a $2.28 dividend that its owner earnings currently cover. At $25 the dividend alone is about a 9% yield; if the shares reach the base-case value within three years the base case implies roughly 24% a year including dividends, and the bear case implies a positive return with the dividend intact or modestly cut. Our margin of safety price is $25.