LTC Properties, Inc.

Good day and welcome to the LTC Properties First Quarter 2020 Analyst and Investor Conference Call and Webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. Before management begins its presentation, please know 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 31st, 2019. 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, and I would now like to turn the conference over to Wendy Simpson, Chief Executive Officer. Please go ahead.

Thank you, Operator, and good morning, everyone. Welcome to LTC's 2020 First Quarter Conference Call. Joining me today are Pam Kessler, our Chief Financial Officer, and Clint Malan, our Chief Investment Officer. First, LTC wants to recognize and acknowledge everyone who is fighting COVID-19 around the clock and risking their health and sometimes that of their otherwise safe families to care for the afflicted and the frail. As much as you can listen to and read about what is going on in the battlefield level, I do not believe that you can truly comprehend what it's like without actually being in the field. All of the progress that has been made, and there has been much done, will bring some normality again to society, but this experience will not be forgotten by any of us. The world is currently operating in a unique environment, especially for those of us in the seniors housing and care sector. LTC has built a strong operator network, and we couldn't be more proud of the work they are doing, sacrifices they are making, the care they are giving, and the lives they are saving. News reports, hospitals, and the government, from the president to the local officials, even possibly your neighborhood website via Nextdoor, are providing their best information regarding the number of diagnosed COVID-19 cases. These numbers could include people who were diagnosed and later died or recovered, or those that still have the virus. Recent reporting shows that testing is finding many more people with COVID-19 who are asymptomatic. These people can be carriers and cause active infection in other people. One huge problem in fighting the disease is having enough testing equipment and labs available to evaluate the tests in a very short time so that appropriate action may be taken. As I have said before, this is a huge and varied nation, made up of states with dissimilar laws and regulations, and we hold investments in 27 states. At the present time, we have operators who have attempted 100% testing of all of their residents and staff, and others who are testing only symptomatic people. In each case, the protocol is that any resident testing positive for COVID-19 is isolated and cared for by only COVID-19 negative caregivers. However, if the caregiver is asymptomatic and the facility does not do 100% testing, one cannot be sure that the caregiver is actually COVID-19 negative. We are in close contact with our operators and have asked them to alert us of any widespread contagion in our properties. It is difficult to compile stats that are comparable when some test 100% and some do not. Some numbers include all cases, including residents who've passed away, have recovered, or who tested positive but are asymptomatic. Some report active cases in the property only as of the day they report to us. We completely understand your desire to get some data to extrapolate or to compare with other REITs who will report soon. We requested information from all of our operators and 93% were able to supply updated information spanning the dates from April 18th to the 29th. At this time, the best data we can provide is that during this 11-day reporting period, 35 of our 180 properties have reported positive COVID-19 cases. Again, these are positive COVID-19 cases. possibly asymptomatic and active. You have all heard of the widespread problem in acquiring sufficient PPE and sanitizing supplies, and the lack of these protections likely contributed to the initial high incidence of additional contagion. As this crisis persists, these supplies are becoming less scarce, but shortages remain, and the costs have increased beyond anyone's estimation. Employee costs have also increased to an almost unbelievable level, but what do you pay someone to try to fight an invisible enemy? The industry is recognizing these heroes with hero pay and other incentives to reward and acknowledge their value. While working with and in support of our operators and the healthcare industry, we are continuing to manage and operate LTC. Against this challenging backdrop, LTC remains highly liquid and conservatively capitalized, which will allow us to respond to future new business opportunities when the pricing of assets in our investment classes can be reasonably calculated. Clint will talk about recent transactions shortly, and Pam will talk about our strong balance sheet and liquidity. Although the market has become more uncertain with respect to our 2020 growth, We continue to lay a foundation that will allow us to act swiftly when the time is right and take advantage of opportunities as they arise. While some banks and private equity are now pulling back from seniors housing and senior care investments, especially in our target market, which includes smaller regional operators and smaller transactions, we are well positioned to fill the void as committed long-term investors. I am confident that LTC will continue to play a leadership role. I would caution, however, that it is unlikely that LTC will close any major transactions in the near term given an underwriting and diligence process that is currently broken and restrained. Given the current situation, it comes as no surprise that a handful of our partners have requested rent deferrals. We are actively assessing and exploring each request and are collaborating with our operating partners to make sure we are helping as needed while being mindful of the broader implications for our company and shareholders. It is important for us to understand the impact COVID-19 has had on our partners' entire operations, and not just the properties they lease from LTC. Clint will provide additional details about rent deferrals later. We believe 2020 Q2 will be even more challenging for our operators than was Q1. due to the larger impact of costs related to PPE, cleaning and sanitizing, and payroll, coupled with the financial impact related to reduced admissions and reduced revenues. We are closely watching several financial relief programs that could possibly provide assistance to some or all of our partners, but at this point we are waiting to see how it plays out. Clint will talk more about some of these programs. At the end of Q1 2020, LTC had a balance of approximately $47 million in straight-line rents receivable. GAAP requires this accounting, despite a maxim I learned as an accountant, which was, anticipate no profit, provide for all possible losses. In my opinion, straight-line accounting for many multiple-year leases does not follow this theory. At least I believe it does not in today's uncertain environment. As we do every quarter, we will continue to evaluate the collectability of our straight-line rent receivables. As a result of this historic economic environment and the effects of COVID-19 on our operators' financial strength, in the future we could determine that there is not sufficient probability that we will collect some or all of our straight-line rent receivables. Should that determination be made, we would write off straight-line rent receivables in accordance with the current lease accounting guidance. Writing off straight line rent receivables would not impact 2020 FAD, but it would impact FFO in shareholders' equity. Due to the uncertainties we currently face and limited visibility into the remainder of 2020 related to how the effects of COVID-19 will play out, we are suspending 2020 guidance. Now I'll turn the call over to Pam.

Thank you, Wendy. Total revenues increased $954,000 from last year's first quarter. Rental revenues increased $411,000 due to acquisitions and completed development projects, higher rent in 2020 from Anthem, leases that were transitioned last year, and the 2019 first quarter write-off of straight-line rent. These increases were partially offset by decreased rent from preferred care and the receipt of deferred rent from Thrive in the 2019 first quarter. Interest income increased $466,000 in the 2020 first quarter due to the funding of additional loan proceeds primarily used for expansion and renovation projects. Income from unconsolidated joint ventures decreased $854,000 due to mezzanine loan payoffs and reduced income from our preferred equity investment on non-accrual status in a real estate joint venture with an affiliate of Senior Lifestyle. Interest expense increased $243,000 due to the sale of $100 million of senior unsecured notes in the fourth quarter of last year, partially offset by lower outstanding balances and lower interest rates under our line of credit in the 2020 first quarter. B&A expense increased $529,000 due to the timing of certain expenditures in the first quarter of 2020 as compared to the same quarter last year, including the variances just detailed Net income available to common shareholders increased $43.1 million from the prior year period due primarily to a net gain on sale of $43.9 million related to 21 properties in our preferred care portfolio, which Clint will discuss. Nareed FFO was $0.74 per diluted share for the first quarter of 2020 and $0.75 per share for the same period last year. Excluding non-recurring items in the prior year, FFO per share was $0.77 in the first quarter of 2019, compared to $0.75 in 2020. Non-recurring items last year included the write-off of straight-line rent related to a lease transition and the receipt of deferred rent from Thrive. The $0.03 decrease in FFO excluding non-recurring items was due to lower income from unconsolidated joint ventures and higher G&A, partially offset by higher revenues. During the 2020 first quarter, we received $71.9 million in net proceeds from the sale of the preferred care portfolio. We repaid $4 million under our line of credit and invested $13.5 million in the acquisition of a skilled nursing center in Texas, which Clint detailed on our last quarter's call. We also funded $6 million in development and capital improvement projects on properties we own and $400,000 under mortgage loans. as well as LTC's $0.19 per share monthly dividend. First quarter 2020 dividend payments totaled $23.2 million. On April 1st, we declared our monthly dividend of $0.19 per share for the months of April, May, and June 2020. At March 31st, we own one property under development with a remaining commitment of $10.8 million. We also have remaining mortgage loan commitments of $2.9 million related to expansions and renovations on four properties in Michigan. During the quarter, we purchased 615,827 shares of LTC stock under our then authorized stock repurchase program at an average price of $29.25 per share, including commissions, for a total investment of approximately $18 million. Shortly after our board authorized the buyback program, they made a strategic decision to terminate the plan given significant changes in the market and the ongoing uncertainty surrounding COVID-19. One of our primary goals right now is to further increase liquidity while focusing on maintaining a strong and flexible balance sheet. We believe this increased financial flexibility and liquidity will allow LTC to better compete for and complete accretive transactions when the time is right. At March 31st, we had $30.9 million in cash and cash equivalents. After the receipt of proceeds in April from the sale of properties in the unconsolidated real estate joint venture with an affiliate of Senior Lifestyle, which Clint will discuss, we have approximately $48 million of cash on hand. We currently have over $510 million available under our line of credit and $200 million under our ATM program. providing LTC with total liquidity of approximately $758 million. This is an increase in liquidity of approximately $68 million from our last earnings call in February. Thus far, we have not deemed it necessary to draw down on our line of credit to further increase our cash balance. 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 2021st quarter, our credit metrics favorably compared to the healthcare REIT industry average, with net debt to annualized adjusted EBITDA for real estate of 4.4 times, an annualized adjusted fixed charge coverage ratio of 4.7 times, and a debt to enterprise value of 37%. The effect of the economic fallout from COVID-19 on the capital markets has resulted in our debt to enterprise leverage metric being higher than our long-term target of 30%. However, at 4.4 times, we are still comfortably below our net debt to annualized adjusted EBITDA for real estate target of below five times. Now, I'll turn things over to Clint.