LTC Properties, Inc.

Good day, everyone, and welcome to the LTC property second quarter analyst and investor call. 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 your touch-tone 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 risks and uncertainties that could cause actual results and events to differ materially. These risks and uncertainties are detailed in LTC's properties filings with the Securities and Exchange Commission from time to time, including the company's most recent 10-K, dated December 31, 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 that this event is being recorded. I would now like to turn the conference over to Wendy Simpson. Please go ahead.

Thank you, Operator, and welcome everybody joining us today for LTC's 2021 Second Quarter Conference Call. With me on the call are Pam Kessler, Co-President and Chief Financial Officer, and Clint Malan, Co-President and Chief Investment Officer. Not being able to quantify an impact of the Delta variant on current and near future operations What we have recently heard from our operators gives us some optimism. We are seeing occupancy gains for the first time in a long while. Vaccination rates among patients and residents throughout the industry are high, generally in the 80% range, with gradual increases expected. Our buildings are beginning to stabilize, with in-person tours and family visits allowed once again. notwithstanding the recent introduction of the Delta variant. The transition of our senior lifestyle portfolio is virtually complete, and we are seeing a nice pickup in deal flow and activity. We are seeing a few encouraging signs throughout the industry. According to NIC data, communities and nursing centers are doing much better clinically than they have in some time given the high rate of vaccinations among residents and patients. On average, especially with respect to SNFs, occupancy is trending slowly upward. Over the last 25 weeks, SNFs have seen occupancy rise in each week except one, when census remained flat. Various government stimulus programs have helped significantly in keeping skilled nursing operators afloat over the course of the pandemic. Additionally, there is about $25 billion remaining for distribution to all healthcare providers in the Provider Relief Fund. While private pay has not been a beneficiary of adequate government relief to date, we are seeing some signs that more aid may become available soon. This is not to say, unfortunately, that all of the challenges facing our industry are slowly trending downwards. labor continues to be a major challenge for operators, and interest rates and inflation are something we're watching carefully. Even so, I believe our industry is on more solid footing today than it has been over the last 18 months, and I'm hopeful that some of the remaining pressures will begin to ease in the coming months. That said, however, a serious surge of the COVID Delta variant across the country, especially in states with lower vaccination rates among staff, could result in the need to stop admissions again temporarily, delaying a full recovery. But hopefully, any such surge will be addressed locally rather than by a national edict. Second quarter rent and mortgage interest income collections were 93.6% excluding senior lifestyle and senior care, and 86.1% excluding just senior lifestyle. whose transition Clint will discuss in detail. We are no longer seeing new substantial requests for rent deferrals and abatements, and if new ones arise, we will review each on a case-by-case basis, keeping in mind an operator's ongoing operations, rent coverage, corporate financial health, and liquidity. We expect to continue providing some amount of relief in the form of deferrals and abatements until occupancy gains become more permanent. I'm so very pleased to be able to report that the senior lifestyle portfolio transition is nearly complete. Nineteen of the buildings have been or shortly will be under new leases. The other four properties in the portfolio have been sold. Clint will provide more details in his comments. With respect to senior care centers, bankruptcy proceedings are continuing with the next scheduled court date on August 11th. Building on the uptick we saw toward the end of the last quarter, deal flow continues to accelerate with several potential transactions in the pipeline that meet our investment criteria. These opportunities are mostly shorter-term and cash flow strategic, with what we believe are reduced risk profiles and strong returns. Through the first half of the year, we have actively reviewed a host of transactions passing on most either because the properties are not performing well or the asking prices don't reflect what we believe to be market value rates. We have no problem temporarily remaining on the sidelines for our more traditional long-term investments until we can find the right deal at the right price. The opportunities we are currently working through include mostly structured finance transactions and span the full spectrum of care. It bears repeating that LTC has ample access to liquidity to act on these opportunities when the timing is right. But as a good financial steward, we will not enter into a deal that does not produce accretive returns for LTC and our shareholders. With respect to our dividend, I'd like to repeat what I said last quarter. It has been LTC's practice to support a dividend payout ratio of approximately 80% of FAD. As a result of the financial support we have provided some of our operators and the significant senior lifestyle and senior care defaults, our second quarter 2021 dividend payout ratio was 98%. However, we believe our 2022 FAD will improve as we fully transition the senior lifestyle portfolio to more stable operators and the issues related to the senior care bankruptcy are resolved. At this time, we will provide guidance for the third quarter. We expect similar NAERIC FFO results as we reported for the just completed second quarter. This guidance does not include recovery of any deferred rent or any rent payment from Senior Care. With that, I'll turn things over to Pam.

Thank you, Wendy. Total revenue increased $9.6 million compared with last year's second quarter, resulting primarily from a $9.5 million increase in rental revenue, which was due to a $17.7 million write-off in last year's second quarter related to senior lifestyle straight-line rent and lease incentive balances. Completed development projects and higher rent payments from Anthem also contributed to the increase. The increase in revenue was partially offset by reduced rent from senior lifestyle, net of rent received from releasing 11 properties in the portfolio, defaulted senior care lease obligations, abated and deferred rent, and a decrease in property tax revenue. Interest income increased $113,000 from the prior year due to the funding of expansion and renovation projects offset by scheduled principal paydowns. Interest expense decreased by $686,000 due to scheduled principal paydowns on our senior unsecured notes, lower interest rates, and a lower outstanding balance under our line of credit, partially offset by lower capitalized interest in 2021. Property tax expense decreased $311,000 compared with last year's second quarter, as the result of the timing of certain operators' property tax escrow receipts and the payment of related taxes, partially offset by completed development projects. GNA was $757,000 greater than last year due to the timing of a call for incentive compensation, salary increases, and restricted stock vesting. Income from unconsolidated joint ventures increased $376,000 due to mezzanine loan fundings. During last year's second quarter, we recognized a loss on liquidation of unconsolidated joint ventures of $620,000 related to the sale of the four properties comprising our unconsolidated real estate joint venture with an affiliate of Senior Lifestyle. During the second quarter of 2021, we recognized a net gain on sale of real estate of $5.5 million related to the sale of three properties in Wisconsin and a closed property in Nebraska, all previously leased to Senior Lifestyle. We also transitioned a memory care property in Colorado, previously operated by Senior Lifestyle, to an operator new to LTC. The lease has a five-year term and provides a purchase option for $5.5 million, which is exercisable after the first year of the lease. Cash rent starting in the second year of the lease is $150,000, increasing to $300,000 in the third year and escalating 2% annually thereafter. Net income available to common shareholders for the second quarter of 2021 increased by $16.4 million, primarily due to the senior lifestyle write-off in the prior year and the gain on sale of the three Wisconsin properties this year. This is partially offset by the revenue declines previously detailed. Mayrete FFO for fully diluted share increased to $0.57 from $0.31 last year. Excluding non-recurring items related to last year's second quarter, FFO for fully diluted share was $0.57 this quarter and $0.76 in the second quarter of 2020. The decrease was principally due to the nonpayment of rent by senior lifestyle and senior care. During the 2021 second quarter, we paid $41 million under our unsecured revolving line of credit. Additionally, we maintained our $0.19 per share monthly dividend by paying our shareholders $22.4 million in common dividends during the quarter. Subsequent to the end of the second quarter, we entered into lease agreements covering the remaining properties in the senior lifestyle portfolio, which Clint will discuss shortly, and sold a skilled nursing center in Washington for $7.7 million. We received proceeds totaling $7.2 million and expect to recognize a gain on sale of $2.6 million. Additionally, we paid $25.2 million in regular scheduled principal payments under our senior unsecured notes and borrowed $19 million under our unsecured revolving line of credit at 1.2%. As a result of this activity, we now have $5.7 million in cash, $515.1 million available on our line of credit, under which $84.9 million is outstanding, and $200 million under our ATM program, providing LTC with liquidity of nearly $721 million. It is important to note that we have no significant long-term debt maturities over the next five years. At the end of the 2021 second quarter, our credit metrics remain strong with a debt to annualized adjusted EBITDA for real estate of 5.3 times, an annualized adjusted fixed charge coverage ratio of 4.3 times, and a debt to enterprise value of 29%. We expect to see this 5.3 ratio come down as we receive more rent from assets formerly operated by Senior Lifestyle, and eventually we expect to be able to collect rent from assets involved in the most recent Senior Care bankruptcy. Next, I'll discuss rent deferrals and abatements. As Wendy mentioned, excluding Senior Care and Senior Lifestyle, we collected 93.6% of second quarter rent and mortgage interest income. We provided 1.1 million in rent deferrals and 1.1 million in rent abatements. As a reminder, Senior Lifestyle did not pay us rent in 2021. With the portfolio virtually fully transitioned, we are receiving contractual rent from the operators who now lease these properties. Additionally, during the second quarter, Senior Care did not pay rent. We applied the remaining $889,000 of the $2.1 million letter of credit to satisfy certain obligations owed under the master lease in the second quarter. As of June 30th, Senior Care's unaccrued outstanding rent balance was $3.1 million. In July, we provided rent deferrals totaling $366,000 and rent abatements of $323,000. We have agreed to provide rent deferrals of up to $493,000 and abatements of up to $319,000 for each of August and September 2021. Now I'd like to turn the call over to Clint.