LTC Properties, Inc.

Good day and welcome to the LTC Properties fourth quarter 2020 analyst and investor conference call. All participants will be in the listen-only mode. Should you need assistance, please signal conference specialists 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. Before management begins its presentation, please know that today's comments including the question and answer session, may include forward-looking statements subject to risk and uncertainties that may cause actual results and events to differ materially. These risks and uncertainties are detailed in the LTC properties filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K, dated December 31st of 2020. 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. I would now like to turn the conference over to Wendy Simpson. Please go ahead, ma'am.

Thank you, Operator, and good morning to everyone. Welcome to LTC's 2020 Fourth Quarter Conference Call. Joining me today are Pam Tesler, Co-President and Chief Financial Officer, and Clint Malin, Co-President and Chief Investment Officer. I'd like to start off today's call by offering our sincerest thanks for 2020 coming to an end and to again thank our operators for all they have done and keep doing to keep their patients, residents, and staff safe. It continues to be a somewhat uneasy road, but our partners have shown amazing resilience and grace. Operating through the pandemic has been different from any other cycle in the history of our industry. During the 08-09 financial crisis, certain levers could be pulled while waiting out a return to normalcy. Similar levers do not exist in this current cycle. By now you have read news reports or heard earnings calls of other health care REITs citing squeezed margins, move-in challenges, labor exhaustion, decreasing length of stay, home health care growth, and holds on elective surgeries, all creating challenges to operators. We do believe that the industry census is close to or has hit bottom. As the current vaccines, and hopefully a third from Johnson & Johnson, become more widely available and utilized, visitation opens up, communities and facilities continue to aggressively market their services, and consumer confidence in these settings improves, we should see the current census stabilize and even improve. However, visibility to these events remains low, so we can't predict when that might happen or when the industry will be able to fully recover from the effect of the pandemic. Because LTC has built a conservative foundation with a strong and flexible balance sheet, we can continue to provide support to our operators if needed and take advantage of investment opportunities as they arise without placing undue strain on LTC. The need for senior care hasn't abated, and states in which we have some of our highest concentration of properties are also states with the highest projected increases in the 80-plus population cohort over the next 10 years. Government support for our industry remains vitally important and our industry associations have successfully lobbied and are continuing to lobby for much needed ongoing aid and support. With the new administration likely comes more spending on and attention to the COVID crisis. It remains to be seen how much additional aid and with it additional governmental regulation will be forthcoming and when it will arrive. We believe this extra support is necessary. Last month, the federal public health emergency declaration related to the coronavirus pandemic was extended through April 20th, keeping in place the temporary 6.2% increase in federal Medicaid matching funds, including the three-day hospital stay waiver. We believe a further extension is likely. Additionally, a bipartisan bill was drafted to help ensure that senior care communities and facilities can maintain adequate staffing levels by allowing temporary nurse aides to retain their certification status after the COVID-19 emergency declaration has been lifted. In addition to the new stimulus package being negotiated, about $30 billion of prior earmarked aid remains unallocated, which will hopefully provide some incremental support to operators and the industry. Moving now to more LTC-specific discussion, I'll start with rent deferrals and abatements. Fourth quarter rent and mortgage interest income collections were strong at 98%. As previously disclosed, we provided partial relief to all eligible operators in the form of reduced 2021 rent escalations. we thought it was prudent to proactively offer relief to our partners so that they had additional funds early in 2021. The rent credit is expected to have an approximate $530,000 impact on our 2021 gap revenue and an approximate $1.3 million impact on our 2021 FAD. As we noted when we announced this program, our board discussed various ways for LTC to provide support while balancing our fiduciary responsibilities to shareholders. So while FAD will be reduced, we are focusing efforts on replacing the funds with creative transactions this year. We will evaluate requests for additional support from operating partners. As we receive them, and we'll review them on a case-by-case basis with careful evaluation of each operator's ongoing operations, rent coverage, corporate financial health, and liquidity. Pam will provide additional color shortly. Next, I'll discuss our senior lifestyle portfolio, which is currently a main area of focus for us as we work to transition the 23 communities they have operated for LTC. So far in the first quarter, we have transitioned 11 assisted living communities to two operators. One operator is new to LTC, and the other is an existing partner. And our goal is to complete all SLC-related transitions by the end of the second quarter. Clint will spend some time on the specifics. The M&A market remains challenging for the industry. While there are deals being done, We do not plan to relax our underwriting standards, opting instead to wait until we can complete deals that provide accretive growth for our shareholders. We do not expect to engage in any large transactions for the foreseeable future, but we are seeing interesting opportunities to participate in growth through structured finance deals with reduced risk profiles and strong returns, especially for development projects, that are not dependent for success on immediate lease up or current census. When the market begins to open up, we plan to use our considerable balance sheet to provide a wide range of regional operating partners with the financing they need to help grow their businesses. Until then, we will continue to develop new relationships and solidify existing ones so that we're ready to act when we see appropriate opportunities. Right now, we see too many uncertainties in 2021, and we feel we cannot reasonably provide guidance at this time. Now I'll turn the call over to Pam.

Thank you, Wendy. Total revenue declined $190,000 compared with last year's fourth quarter. Impacting our results were abated delinquent and deferred rent granted in 2020, a reduction in property tax revenue, and lower rental revenue from the sale of the preferred care portfolio in 2020. Additionally, in the fourth quarter of 2019, we collected past due rent from senior care. Partially offsetting the decline was rent from acquisitions and completed development projects, higher rent payments from Anthem, and contractual rent increases. Mortgage interest income increased $226,000 due to the funding of expansion and renovation projects. Interest expense decreased $490,000. due to lower outstanding balances and interest rates under our line of credit in the fourth quarter of 2020 and scheduled principal payments on our senior unsecured notes. Property tax expense decreased $809,000 primarily due to the timing of senior lifestyle property tax escrow receipts and the payment of related taxes. GINA expense increased $675,000 compared with the fourth quarter of 2019 due to the reimbursement of legal fees from senior care in the prior year period, as well as the timing of certain expenditures. Income from unconsolidated joint ventures decreased $270,000 due to a dissolution in 2019 of a preferred equity investment in a joint venture, offset by two preferred equity investments we made in 2020. During the fourth quarter of 2020, we recorded a $3 million impairment charge associated with a memory care community in Colorado operated by Senior Lifestyle. The impairment related to our release efforts of this property. During the fourth quarter of 2019, we recognized a $5.5 million impairment charge related to the Senior Lifestyle joint venture. The four properties comprising the JV were sold in the second quarter of 2020. Accordingly, we received liquidation proceeds of $17.5 million and recognized a loss on liquidation of unconsolidated joint ventures of $620,000. During the fourth quarter of 2020, we recognized an additional loss of $138,000 related to the final liquidation of this unconsolidated joint venture. In the fourth quarter of 2019, we recognized a $2.1 million gain from insurance proceeds related to a closed skilled nursing center in Texas. This property sustained hurricane damage, and rather than rebuild it, we sold it and two other properties in the fourth quarter of 2019, resulting in a cumulative loss of $4.6 million. We provided senior lifestyle deferred rent in the amount of $394,000 in April of last year. While this amount has since been fully repaid, they failed to pay full rent during the second quarter of 2020. As a result, we wrote off a total of $17.7 million of straight-line rent receivable and lease incentives related to this master lease and transitioned rental revenue recognition to a cash basis effective July 2020. During the fourth quarter of 2020, we applied their letter of credit and deposits totaling $3.7 million to accrued second quarter 2020 rent receivable of $2.5 million and notes receivable of $125,000, with the remaining $1.1 million to third and fourth quarter 2020 rent. At December 31, 2020, Senior Lifestyles' unaccrued delinquent rent balance was $1 million. Net income available to common shareholders for the fourth quarter of 2020 increased by $5 million, primarily resulting from acquisitions and completed development projects, rent increases, lower interest expense, the prior year's loss on sale, and the fourth quarter of 2019's $5.5 million impairment charge. Offsets included the $3 million impairment charge, decreased rent related to the preferred care property sales, abated and deferred rent net of repayment, a decrease in property tax revenue, the 2019 receipt of 2018 past due rent from senior care, and the fourth quarter 2019 gain from insurance proceeds. Married FFO per fully diluted share is 78 cents in the fourth quarter of 2020 and 81 cents in the prior year fourth quarter. Excluding the gain from insurance proceeds in the fourth quarter of 2019, FFO per fully diluted share was 76 cents. The two-cent increase in FFO, excluding the gain, was due to lower-weighted average shares outstanding in 2020, resulting from the purchase of shares in the first quarter of 2020 under our share buyback program. Moving now to our investment activity. During the fourth quarter of 2020, we invested $5 million under our previously announced $13 million preferred equity commitment related to the development of a 267-unit independent and assisted living community in Vancouver, Washington. Our investment earns an initial cash rate of 8% and a 12% IRR. We expect to fund our remaining $8 million investment before the end of the first quarter of 2021. The preferred equity investment is accounted for as an unconsolidated joint venture. We also funded $6.3 million in development and capital improvement projects at a weighted average rate of 8% on properties we own and paid $22.4 million in common dividends. Our 2020 FAD payout ratio was 77%. We currently have remaining commitments under mortgage loans of $1.7 million related to expansions and renovations on three properties in Michigan. We also paid $7 million in regular scheduled principal payments under our senior unsecured notes. Subsequent to the end of the quarter, we borrowed $9 million under our unsecured line of credit. Including this borrowing, we have $7.8 million in cash, $501.1 million available on our line of credit, under which $98.9 million is outstanding, and $200 million under our ATM program, providing LTC with liquidity of approximately $709 million. As a reminder, we have no significant long-term debt maturities over the next five years. At the end of the 2024 quarter, our credit metrics remained favorably compared with the health care rate industry average. with net debt to annualized adjusted EBITDA for real estate of 4.3 times, an annualized adjusted fixed charge coverage ratio of 5.3 times, and a debt to enterprise value of approximately 30%. I'll conclude my remarks with a discussion of rent deferrals and abatements. We collected 98% of fourth quarter rent and mortgage interest income, including the application of Senior Lifestyle's letter of credit and deposit. Of the rent not collected, $360,000 related to rent abatements, and $369,000 related to rent deferral net of repayments, which were provided to three private pay operators Clint mentioned on our previous earnings call. As I mentioned earlier, Senior Lifestyle remains delinquent in their 2020 contractual rent by $1 million, and they have paid no rent so far in 2021. For all of 2020, we collected 98% of contractual rent including the application of senior lifestyles, letter of credit, and deposits. Of the 2% we did not collect, 0.7% was abated, 0.7% was net deferred, and the remaining 0.6% was delinquent. To date so far in 2021, rent deferrals total $689,000, net of $14,000 of deferred rent repayments. These deferrals relate to the same three private pay operators previously mentioned. Excluding the rent credit related to the rent escalation reduction already discussed, abated rent to date in 2021 is $360,000. We did receive rent from the operators who transitioned former SLC-operated communities to date. Clint will provide more detail. Now I'll turn things over to Clint.