LTC Properties, Inc.

Good day, and welcome to the LTC Properties third quarter 2020 conference call. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one on your touchtone phone. To withdraw a question, please press star, then two. 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 for the securities and exchange commissions from the time to time, including the company's most recent 10-K dated December 31st, 2019. LTC's undertakings, no obligation to revise or update these forward-looking statements to reflect the events or circumstances after the date of the presentation. Please note this event is being recorded. I would now like to turn the conference over to Wendy Simpson.

Thank you, Operator, and good morning, everyone. Welcome to LTC's 2020 Third Quarter Conference Call. Joining me today are Pam Kessler, our Co-President and Chief Financial Officer, and Clint Malen, Co-President and Chief Investment Officer. I'm excited that we also have Mark Parkinson from the American Healthcare Association with us to discuss how our industry is responding to the COVID-19 crisis, specifically as it relates to the CARES Act and government support in the seniors housing and skilled nursing space. Before I begin my business review, I want to again thank our operating partners for all of their efforts to keep their patients, residents, and employees safe during the pandemic. It bears repeating that we could not be more in awe of their responses to the extraordinary challenges they have faced over the last many months, and we know they will valiantly face several months to come as some areas experience resurgence of cases and we enter the winter and flu season. I would also like to quickly update you on the story we told you last quarter about Mary Daniel, the wife of an Alzheimer's patient at one of our communities. Mary took a part-time dishwashing job so that she could spend time with her husband amidst visitation restrictions. Because the governor of Florida recently eased COVID-related restrictions for senior housings and care visitation, Mary completed her professional dishwashing career and can now visit her husband at will, adhering to all proper safety protocols, of course. The community, Rose Castle at Deerwood, which is operated for us by ALG Senior, has maintained close ties with Mary. She continues to be active in the media, speaking positively about Rose Castle as well as advocating for families across the nation who are trying to find ways to see and visit their loved ones. We wish Mary and Steve nothing but the best. Unfortunately, there has not been a consistent meaningful decrease in COVID-19 cases around the country. In fact, many states and regions are seeing spikes in new cases. Some states, however, have been able to flatten the curve with several easing restrictions as they pertain to senior housing and care. While our industry continues to face cost challenges related to supplies, testing, and staffing, I believe our operating partners now have better tools and a much better understanding of how to manage in the world of COVID. LTC is continuing to provide support where we are needed. For example, we're in the process of rolling out a new program called Smart Design, which was conceived by our Executive Vice President and Managing Director of Business Development, Doug Corey, and our Vice President Marketing and Investor Relations, Mandy Hogan. This initiative comes from LTC's desire to assist operators in upgrading their buildings for state-of-the-art infection control protocols. While some of the biggest operators in the country may have the resources to take on such projects on their own, smaller regional operators often don't have the same bandwidth. With that in mind, we are partnering with Avenue Development to assist our operators with turnkey and customized retrofitting options. Some features of smart design include air filtration, including bipolar ionization, UV sanitation devices, custom dividers, and touchless equipment, among others. Avenue will be responsible for the retrofitting, while LTC will work with our partners to finance implementation of the program into current leases or providing a line of credit with attractive rates and flexible terms. While COVID was the catalyst for the program, we believe the benefits will serve us well over the long term by helping ensure our portfolio includes safer, more updated assets. Mark is going to spend his time talking about government initiatives and relief for our industry, so I'll comment just briefly. After a considerable lobbying effort, private pay operators are now receiving government aid. They, along with skilled nursing operators, also receive point-of-care testing equipment from the government. Most recently, the government released Phase III of its CARES Act, which includes an additional $20 billion in funds earmarked to help cover lost revenue to healthcare providers. Government support has been and will continue to be vital for our industry. Mark will provide more insight and greater detail. Moving now to more LTC-specific discussion, while the quarter did not include significant new investments, Our focus on structured finance opportunities resulted in us committing nearly $20 million in preferred equity, some of which has already been funded and the remainder of which is expected to be funded in the fourth quarter. Pam and Clint will provide additional details. Although restrictions regarding visits to care facilities are starting to loosen in some parts of the country, we are cognizant of the fact that the fall and winter could bring surges of the virus and with that, restored or additional constraints. We look forward to ramping up our engagement with potential acquisition targets when safe and as restrictions are lifted. The market remains challenging, but I firmly believe that LTC has built a strong reputation as a creative financing partner in the seniors, housing, and care space by thinking outside of the REIT box to create solutions that provide our operating partners with the financing they need to help grow their business. The reputation will serve us well over the long term. Moving to rent deferrals and abatements. We collected 94% of third quarter rent, excluding senior lifestyle, which I'll discuss in a moment. Third quarter rent collected was 97%. The rent deferrals and abatements were granted to private pay operators. I believe I have mentioned my dislike of the GAAP requirement to recognize straight line rent. Subsequent to our reporting second quarter results, Genesis reported that they had a going concern issue. Genesis is current on rents with us and they have not requested any rent deferrals. Still, LTC has had to report a reduction in this quarter's revenue for the straight line rent write-off related to this lease. Another operator, not in our top 10, who has been a go-to operator for challenging properties and has historically performed well, has been adversely impacted by COVID-19 and began short paying rent in the third quarter and requested deferrals. Despite receiving government financial support, this operator is reluctant to actually use those funds to pay rent for fear that there may be a government payback provision. As a result, we put them on the cash basis and wrote off their straight line balance. Additionally, in support of this operator, we agreed to close an assisted living facility in Florida that had drawn the attention of certain plaintiff's attorneys and was damaged by one of the recent Florida storms. This closure required us to record a realization reserve of $941,000. We have not relieved the operator of the obligation to pay contractual rents going forward, and I believe we will eventually recover our deferred rents and contractual rents, but Pam tells me my belief is not GAAP. I'll now provide a quick update on our senior lifestyle portfolio. As I mentioned last quarter, we placed the portfolio on a cash basis due to a shortfall in May and June rent payments. Since that time, while recent rent payments are trending up, Senior Lifestyle remains in arrears. For the 2020 third quarter, we received rent payments of approximately $3.3 million against their quarterly contractual rent obligation to LTC of approximately $4.6 million. At September 30th, Senior Lifestyle owed us $3.8 million for second and third quarter rent, $2.5 million of which is recorded in our financial statements and is covered by an undrawn letter of credit which we hold. In October, we received rent of approximately $1.3 million against Senior Lifestyle's contractual rent obligation for the month of approximately $1.6 million. In cooperation with Senior Lifestyle, We are actively working to make changes to the 23 property portfolio, which may include bringing in new operators, pursuing sales of some of the buildings, or retaining senior lifestyle in a few of the properties. We are currently in negotiations with several parties and expect to have resolution for the majority of the portfolio in the first quarter of 2021. As we discussed previously, Transitioning this portfolio provides LTC with the opportunity to build relationships among several different regional operators, some of whom will be new to LTC and others with whom we have an existing relationship. As a result, we will further reduce portfolio concentration, one of our key strategic focuses. With respect to guidance, we are not providing it at this time due to ongoing COVID-related uncertainties. Now I'll turn the call over to Pam.

Thank you, Wendy. Total revenue decreased $8.9 million compared with last year's third quarter, primarily resulting from the $5.5 million write-off that Wendy discussed, a result of transitioning two leases to cash basis accounting as of September 30, 2020. Genesis disclosed in its most recent 10-Q that there was substantial doubt about its ability to continue as a going concern. LTC continues to collect all contractual rent due from Genesis. However, the level of certainty regarding the collectability of future rent from Genesis through lease maturity does not meet the threshold required to maintain it on an accrual basis. The other operator did not pay its full contractual rent for the third quarter of 2020 due to COVID-19, and we wrote off their straight-line rent balance. During the quarter, we provided this operator with rent support in the form of deferrals and abatements totaling $756,000. As with Genesis, the level of certainty regarding the collectability of this operator's future rent through lease maturity does not meet the threshold required to maintain it on an accrual basis. Decreased rent from preferred care resulting from the sale of that portfolio earlier this year lower rent from senior lifestyle, deferred and abated rent, and a reduction in property tax revenue also contributed to the decline in total revenue. Offsetting these reductions were contractual rent increases, increases related to acquisitions and completed development projects, and higher rent payments from Anthem. Interest income from mortgage loans increased $244,000 due to the funding of expansion and renovation projects. interest and other income decreased $535,000 due to the partial pay down of an outstanding mezzanine loan as well as a reduction in miscellaneous income. Income from unconsolidated joint ventures decreased $704,000 in the third quarter due to the repayment of a mezzanine loan accounted for as a joint venture and the dissolution of our preferred equity investment in a joint venture with an affiliate of Senior Lifestyle which occurred in the second quarter. Interest expense decreased $466,000 due to lower outstanding balances and lower interest rates under our line of credit in 3Q 2020, partially offset by the sale of 100 million of senior unsecured notes in 4Q 2019. Property tax expense decreased $919,000 due to preferred care property sales and our senior lifestyle portfolio, offset by increases related to acquisitions and completed development projects. During the third quarter, we recorded a $941,000 impairment charge related to the closed assisted living property in Florida. We also received $373,000 in insurance proceeds for roof damage related to a property we sold in the first quarter of this year. Net income available to common shareholders for the third quarter of 2020 decreased $15 million, primarily due to the straight-line rent write-offs and the decreased rent from preferred care and senior lifestyle that I discussed earlier. Deferred and abated rent, the impairment charge, lower income from unconsolidated joint ventures, and a $6.2 million gain on sale in last year's third quarter also contributed to the decline. The offsets included increases due to acquisition and completed development projects, contractual rent increases, and an increase in Anthem's rent, lower interest expense and the gain from insurance proceeds. Nary FFO for fully diluted share was 58 cents for the 2020 third quarter compared with 77 cents last year. Excluding the non-recurring items already discussed in the current period, FFO for fully diluted share was 71 cents this quarter compared with 77 cents for last year's third quarter. The six cents decrease in FFO excluding non-recurring items resulted from lower revenues related to property sales, reduced rent from senior lifestyle, deferred and abated rent, and lower income from unconsolidated joint ventures, partially offset by lower interest and property tax expense. Funds available for distribution excluding the $373,000 non-recurring insurance proceeds gain decreased $2 million due to senior lifestyle and deferred and abated rents in the third quarter of 2020. During the third quarter, we invested $6.3 million of preferred equity to develop and own an assisted living and memory care community. This investment earns an initial cash rate of 7%, increasing to 9% in year four until the IRR reaches 8%. After achieving an 8% IRR, the cash rate drops to 8%, with an IRR ranging between 12% and 14%, depending on the timing of redemption. The investment is accounted for as an unconsolidated joint venture. We also entered into a preferred equity agreement to invest $13 million to develop and own an independent and assisted living community. We expect to fund this investment after certain conditions are met, the deadline for which is December 1st. It will earn an initial cash rate of 8% and an IRR of 12%. This investment is also accounted for as an unconsolidated joint venture. Clint will discuss these transactions in greater detail shortly. In the third quarter, we also funded $3.9 million in development and capital improvement projects on properties we own, $1.6 million under mortgage loans, and paid $22.4 million in common dividends. During the quarter, the development of our 90-bed skilled nursing center in Missouri was completed under budget by $1.3 million. We anticipate funding the remaining $3.1 million of project costs in the 2024 quarter. Initial yield on our investment is 9.25% escalating annually by 2%. We currently have remaining commitments under mortgage loans of $2.3 million related to expansions and renovations on four properties in Michigan. We received $2.6 million in the 2023 quarter related to the partial pay down of an outstanding mezzanine loan. At September 30, we had $22.8 million in cash. We also had more than $510 million available under our line of credit and $200 million under our ATM program, providing LTC with ample liquidity of approximately $733 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 third quarter, our credit metrics compared favorably to the healthcare REIT industry average with net debt to annualized adjusted EBITDA for real estate of 4.6 times, an annualized adjusted fixed charge coverage ratio of 4.7 times, and a debt to enterprise value of 32.9%. 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 4.6 times, we are still comfortably below our net debt to annualize adjusted EBITDA for real estate target of below five times. I'll finish my comments with a brief discussion of rent deferrals and abatements. As Wendy mentioned, we collected 94% of third quarter rent. Of the rent not collected, $690,000 related to rent abatements, $326,000 related to rent deferrals, and $1.3 million related to delinquent rent from Senior Lifestyle. During the second and third quarters of 2020, rent deferrals and abatements totaled approximately $1.4 million, net of $530,000 $2,000 in deferred rent repayments, or 1.8% of contractual rent for the period. In October, rent deferrals were $566,000, abatements were $120,000, and delinquent rent was $264,000. Additionally, we received deferred rent repayments of $51,000 in October. As a reminder, our rent deferral agreements generally require the deferred rent to be paid within six to 24 months. Now I'd like to turn things over to Clint.