LTC Properties, Inc.

Good day and welcome to the LPC Properties, Inc. Second Quarter 2020 Analyst and Investor Call. All participants will be in 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 your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference. Over to Wendy Simpson. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to LTC's 2020 second quarter conference call. Joining me today are Pam Kessler, co-president and CFO, and Clint Malin, co-president and chief investment officer. I'm also thrilled that Lynn Katzman, founder and CEO of Juniper Communities, is joining us as a special guest. We are including on our call an informative session with Lynn designed to provide insights and an operator's perspective on the challenges caused by the pandemic and the lessons learned while meeting these challenges. I would also like to acknowledge Pam and Clint, who recently were promoted to co-presidents in recognition of the many important contributions they have made to LTC over the years. With me, they share a strong strategic vision of LTC's future. Please join me in congratulating them for these well-deserved promotions. Before I begin to review our business, I want to thank our operating partners for all they have done for their patients, residents, and employees during the pandemic. They have aggressively dealt with unprecedented challenge over the last several months, while also solving problems creatively and compassionately. Speaking of creativity, I would like to share this story from one of our memory care communities that recently made national news. After being separated for more than 100 days from her husband, Steve, who is suffering from early onset Alzheimer's, Mary Daniel was focused on finding a way to reunite with him. Our operator, ALG Senior, headquartered in Hickory, North Carolina, thought outside of the box, and offered Mary a part-time job as a dishwasher. Both Mary and the community are taking this job seriously. She receives substantial training on assisted living care and has been tested weekly for COVID-19. Now after each shift, Mary visits Steve in his room where they watch TV and lay in bed together holding hands. She uses her paycheck to buy gift cards for the staff in recognition of the very hard work they are doing to care for her husband and others' loved ones. There are similar stories from many of our operators around the country. In fact, I hope Lynn will share some of her own. We commend them for working tirelessly to provide care where it is needed the most and have confidence they will continue to meet this new normal with diligence, strength, and grace. Although most states were able to successfully flatten the curve earlier on in the pandemic, COVID-19 cases have spiked around the country, potentially overtaxing our healthcare system. In our industry specifically, uncertainties remain around PPE, sanitizing supplies, testing and staffing. Demand for testing has increased, resulting in growing lag times between tests and results, while some testing results have been found to be unreliable. The recent decision by CMS to provide point-of-care COVID-19 test supplies to skilled nursing facilities should help, but to our knowledge, there is no similar program for private pay communities. It is quite impressive to see how our industry has come together during this time. In addition to the work being done by operators, several industry organizations have launched initiatives, including intensive lobbying of Congress for additional relief funding limited liability protection, and the prioritization of testing, PPE, and access to a vaccine when available. They have also engaged PR firms and launched media campaigns in an effort to enhance the perception of our industry and refute recent trends of negative press. LTC is honored to be an active participant in several of these programs. Moving more specifically to LTC's second quarter results, most directly due to COVID costs and other COVID impacts. We have placed our senior lifestyle portfolio on a cash basis as of July 1st, due to a shortfall in May and June rent payments. Senior Lifestyles total quarterly rental obligation to LTC is approximately $4.6 million. For the quarter ended June 30th, 2020, we received a total of approximately $1.8 million. In July, we received approximately $1.1 million. While recent rent payments have been trending up, at June 30th, Senior Lifestyle owed us $2.8 million for the second quarter of 2020, which is reflected in our receivable balance as of that date and is covered by an undrawn letter of credit that we hold. In cooperation with Senior Lifestyle, we are evaluating our options for the portfolio, which may include seeking new operators for the 23 properties and or pursuing sales of some of the 23. A split of the portfolio among several different regional operators, some of whom could be new to LTC properties, provides an opportunity to reduce portfolio concentration while building relationships with operators new to LTC with whom we can grow. We have proactively managed operator concentration in our portfolio. Our current senior lifestyle is one of only two operators where income and asset concentration exceeds 10%. Not surprisingly, the quarter has been quiet with respect to new investments. However, we are continuing to court potential operating partners and evaluate structured finance opportunities, which typically have shorter investment durations. and we believe offer better risk-adjusted returns in today's market. While the market still remains uncertain with respect to 2020, the foundation we have built will serve us well when restrictions loosen and we can again actively engage with potential acquisition candidates. Being well capitalized allows us to more quickly step into situations than some other financing sources. Although I believe that it is unlikely we will close any major transactions in 2020, I also believe that LTC will continue to play a strategic and important role in seniors housing and care financing over the long term. As we discussed last quarter, we are not giving 2020 FFO guidance due to COVID related uncertainties. Now I'll turn the call over to Pam.

Thank you, Wendy. As Wendy discussed, we have placed Senior Lifestyle on a cash basis as of July 1. Additionally, we wrote off our straight-line rent and lease incentive balances related to Senior Lifestyle as of June 30. Primarily due to this write-off, total revenues decreased $17.8 million from last year's second quarter. Decreased rent from Preferred Care was also a contributing factor. These declines were partially offset by acquisitions and completed development projects increased rent from 2019 lease transitions, and higher rent from Anthem. Interest income increased $469,000 in the 2020 second quarter due to the funding of additional loan proceeds and expansion and renovation projects. Income from unconsolidated joint ventures decreased $128,000 in 2Q 2020 due to mezzanine loan payoffs and reduced income from our preferred equity investment in a joint venture with an affiliate of Senior Lifestyle. During the fourth quarter of last year, we recognized a $5.5 million impairment charge related to our $25 million investment in the joint venture. In the second quarter of 2020, the four properties comprising the JV were sold, as discussed on our last call. Accordingly, we received partial liquidation proceeds of $17.5 million and recognized a loss on liquidation of unconsolidated joint ventures of $620,000. We have a receivable balance of $1 million related to additional proceeds that we anticipate receiving throughout the second half of 2020. Interest expense decreased $164,000 due to lower outstanding balances and lower interest rates under our line of credit in 2Q 2020, partially offset by the sale of $100 million of senior unsecured notes in the fourth quarter of 2019. G&A expense was comparable year over year. Net income available to common shareholders decreased $18.6 million due primarily to the write-off of senior lifestyle, straight-line rent receivable, and lease incentive balances, as well as the loss on the liquidation of our unconsolidated JV. May REIT FFO was $0.31 per diluted share for the second quarter of 2020 and $0.75 per diluted share for the same period last year. Excluding the non-recurring items already discussed in the current period, SFO per share was $0.76 this quarter compared with $0.75 in last year's second quarter. During the 2020 second quarter, we received $17.5 million from the sale of the properties in the JV with an affiliate of Senior Lifestyle, as previously discussed, and $2.1 million related to the partial pay down of an outstanding mezzanine loan. We funded $2 million of additional proceeds under an existing mortgage loan with an affiliate of Prestige Healthcare, which is secured by four skilled nursing centers with a total of 501 beds. The additional proceeds bear interest at 8.89%, increasing 2.25% annually thereafter. We also funded $7.4 million in development and capital improvement projects on properties we own, $200,000 under mortgage loans, and paid $22.4 million in common dividends. At June 30, we own one property under development with remaining commitments of $7.4 million. We also have remaining commitments under mortgage loans of $2.7 million related to expansions and renovations on four properties in Michigan. At June 30, we had $50.4 million in cash and cash equivalents. We currently have over $510 million available under our line of credit and $200 million under our ATM program providing LCC with total liquidity of approximately $760 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 2020 second quarter, our credit metrics compared favorably to the healthcare industry average with net debt to annualized adjusted EBITDA for real estate of 4.3 times, an annualized adjusted fixed charge coverage ratio of 4.9 times, and a debt to enterprise value of 32%. The effect of the economic fallout from COVID-19 on the real estate capital markets has resulted in our debt to enterprise leverage metric being higher than our long-term target of 30%. However, at 4.3 times, We are still comfortably below our net debt to annualize adjusted EBITDA for real estate target of below five times. I'd like to quickly discuss rent deferrals before turning the call over to Clint. For the second quarter, rent deferrals were less than $1 million, or approximately 2% of second quarter rent. Approximately $277,000 of this deferred rent has been repaid. Accordingly, at June 30, there were $653,000 in rent deferrals outstanding, or about 1.5% of rent. In July, we received two deferral requests from operators and granted one in the amount of $80,000 for July and the other totaling $280,000 for August and October rent. Now I'll turn the call over to Clint.